TORONTO - For Frank Stronach, the multimillionaire entrepreneur with the looks and inner fire of an evangelist preacher, Magna International Corp. is more than just a company. It is the prototype for a new way of doing business.
He espouses the unconventional notion that you can make money and still treat people well. Very well.
In fact, he proclaims, you cannot do one effectively without the other.
For Stronach, this means guaranteeing employees wages and benefits that are competitive with other companies in similar geographic and business areas and insisting they take a share of the profits.
'It's a whole new economic culture,' said the Austrian-born Stronach. 'We call it a `fair enterprise system.''
Vision becomes reality
The intense man with the shock of white hair started the $9 billion (Canadian) international auto parts giant from a tool-and-die shop in a rented garage in 1957.
Today, his company is governed by a corporate constitution, which defines the rights of employees and investors, and an employee charter of rights, which commits Magna to an operating philosophy based on fairness and concern for the people it employs.
Stronach thinks Magna is the only company in the world governed by such documents.
Most companies operate under bylaws, which can be changed by the board. Change at Magna would require consensus of management, shareholders and employees.
The constitution and charter aren't 'corporate culture' doublespeak designed to make Magna simply sound like a concerned and caring, '90s kind of corporation, Stronach and other Magna managers insist. Rather, they exist to make Magna a profitable company.
Under the Magna system, managers are paid below industry norms but are rewarded generously for high performance.
The payoff is a management team that has the entrepreneurial latitude to run its own show. All the managers have to do is give their customers a better-quality product at a better price, keep their employees happy under the terms of the charter and make a reasonable profit to keep investors satisfied.
Many have done this well enough to make themselves a lot of money over the years. Stronach, who at the age of 65 continues to lead Magna's expansion campaign in Europe, is served from the same pot: His share of Magna's profits last year amounted to the equivalent of $19 million U.S.
Conversely, when Magna failed to turn a profit in 1990, Stronach received only his base compensation.
While he describes himself as a staunch believer in free enterprise, he's the first to admit the system has its faults, chief among them human greed.
'Greed needs checking. In a fair enterprise, you check greed with a corporate constitution,' Stronach said.
Balance of 3
Magna's first auto industry contract was with General Motors in 1960. Stronach then began to expand the company, often by offering partnerships to key employees. By the late 1960s, Magna was operating eight plants, and Stronach was eyeing the potential of what he could see was a growing auto parts sector.
He also was beginning to have to deal with the traditional confrontational relationship between management and labor, he recalled.
'We all know business is based on three forces: management, labor and capital,' Stronach said. 'But if the three are not in balance, the company cannot work.'
He felt he had to get his employees involved and give them ownership in the company. 'You don't want to motivate your employees simply so that they work hard but so that they think,' Stronach said.
'In most places, people do just what they have to do so as not to lose their jobs. But once people realize they have a stake, they begin to think differently. They work smarter.'
To make that happen, he said, you have to create an environment in which people are treated fairly and without discrimination.
'If you don't do this, people become unhappy, and unhappiness is contagious,' Stronach said.
'And once you have unhappy people, and people who don't respect management, there's no way you can make a quality product at a competitive price. So, it's bad business to be unfair, to discriminate,' he said.
Stronach's first step toward realizing his vision involved taking the company public in 1969 through a merger with Magna Electronics, an aerospace, defense and industrial components company. The next step was the creation of an employee equity participation and profit-sharing program in 1974.
From this evolved a formal constitution and employee charter.
'I'm a great believer that you have to have clear-cut principles, that things have to be very transparent, that people have to understand what it's all about, and that's why I developed the corporate constitution,' he said.
'The shareholders know, the workers know, management knows' what their shares are. 'It's predetermined. You can't monkey with it.'
Stronach, who has been a hands-on manager since he began the company, vigorously denies any hint of paternalism. 'I want to create capitalists,' he insisted. He also pointed out that he personally cannot change the 'laws' that govern Magna.
'Even though I'm the founder, I cannot change that constitution. It can only be changed if the employees, management and shareholders agree. If we tried to change it in any other way, it would trigger a legal avalanche,' he said.
He said other companies have studied Magna's approach, but because it's an irrevocable step, most shy away from taking it.
The man who makes sure Magna employees get the fair shake promised them is Don Amos, executive vice president of administration and human resources. He said he was one of a number of senior people who didn't share Stronach's vision at first.
'What we've learned since is that this approach is really the best one for business. If you can keep your people problems to a minimum, you'll make a better product for a better price,' Amos said.
'One of the first things we learned was that fairness meant consistency. It doesn't matter what supervisor or lead hand people work for, or what shift they're on or department they're in, they have to be treated the same as everybody else.'
Amos said Magna has zero tolerance for favoritism and discrimination in its plants and does all it can, such as through job postings, to help employees achieve their potential.
Fairness committees, made up of employee volunteers, deal with fairness issues within individual plants.
'We're trying to bring democracy to the workplace,' Amos said. 'At no time will anything that bothers an employee go unnoticed.'
Job security and wages and benefits are other key issues dealt with in the employee charter. Magna pay scales are based on a total wages and benefits package equivalent to that of those businesses that compete with a specific division for a customer's contracts.
If disparities arise, wages are adjusted upward on an annual basis.
Magna's equity and profit participation program shares 10 percent of pretax profits with employees, who in fiscal 1997 divided up $52 million (Canadian).
Management has been to a large degree 'Magna-tized,' said Klaus Niemeyer, general manager of Magna's Karmax division in Milton, Ontario.
'We know Frank and what he did in the beginning. We understand his vision. So if you follow the same principles, it's easy to run a company like Karmax.'
But following Stronach's vision isn't as easy as simply dictating how things will be done, Niemeyer said.
'You don't just say, `Do it.' You have to think about how to explain it to the people, and how to motivate them.'
Magna's rapid growth, particularly the portion of it due to acquisitions, promises to make Amos' job more difficult in the years ahead.
While hot on the acquisition trail, Magna has not been averse to purchasing unionized plants. The company is committed to working with unions where it has to, always keeping Stronach's vision in mind.
'We recognize that there are going to be problems from growth,' Amos said.
'We have to integrate those companies into our corporate culture. My main challenge is that ... the corporate culture continue 30, 40, 50 years down the road. As Frank has said, `The Magna culture has to be bigger than any one person.''